Breach or Repudiation of Sales under the Commercial Code

California’s Commercial Code, in Division 2, Chapter 6, deals with breaches, repudiation, and excuses for sales. Section 2601 provides that, with specified exceptions, if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may reject the whole; or accept the whole; or accept any commercial unit or units and reject the rest.

Section 2602 states that rejection of goods must be within a reasonable time after their delivery or tender. It is ineffective unless the buyer seasonably notifies the seller. After rejection any exercise of ownership by the buyer with respect to any commercial unit is wrongful as against the seller. If the buyer has before rejection taken physical possession of goods in which he does not have a security interest, he is under a duty after rejection to hold them with reasonable care at the seller’s disposition for a time sufficient to permit the seller to remove them.

Section 2603 says that, when the seller has no agent or place of business at the market of rejection a merchant buyer is under a duty after rejection of goods in his possession or control to follow any reasonable instructions received from the seller with respect to the goods and in the absence of such instructions to make reasonable efforts to sell them for the seller’s account if they are perishable or threaten to decline in value speedily. Instructions are not reasonable if on demand indemnity for expenses is not forthcoming.

Section 2604 provides that, if the seller gives no instructions within a reasonable time after notification of rejection, the buyer may store the rejected goods for the seller’s account or reship them to him or resell them for the seller’s account with reimbursement as provided in the preceding section. That action is not acceptance or conversion.

Section 2605 states that the buyer’s failure to state in connection with rejection a particular defect which is ascertainable by reasonable inspection precludes him from relying on the unstated defect to justify rejection or to establish breach where the seller could have cured it if stated seasonably or between merchants when the seller has after rejection made a request in writing for a full and final written statement of all defects on which the buyer proposes to rely.

Section 2606 provides that acceptance of goods occurs when the buyer takes one of three specified actions. Acceptance of a part of any commercial unit is acceptance of that entire unit.

Section 2607 requires the buyer to pay at the contract rate for any goods accepted. Acceptance of goods by the buyer precludes rejection of the goods accepted and, if made with knowledge of a nonconformity, cannot be revoked because of it unless the acceptance was on the reasonable assumption that the nonconformity would be seasonably cured. Acceptance does not of itself impair any other remedy provided by this division for nonconformity.

Section 2608 authorizes the buyer to revoke his acceptance of a lot or commercial unit whose nonconformity substantially impairs its value to him if he has accepted it on the reasonable assumption that its nonconformity would be cured and it has not been seasonably cured, or without discovery of such nonconformity if his acceptance was reasonably induced either by the difficulty of discovery before acceptance or by the seller’s assurances.

Revocation of acceptance must occur within a reasonable time after the buyer discovers or should have discovered the ground for it and before any substantial change in condition of the goods which is not caused by their own defects. It is not effective until the buyer notifies the seller of it. A buyer who revokes has the same rights and duties with regard to the goods involved as if he had rejected them.

Section 2609 specifies that a contract for sale imposes an obligation on each party that the other’s expectation of receiving due performance will not be impaired. When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance.

Between merchants the reasonableness of grounds for insecurity and the adequacy of any assurance offered is determined according to commercial standards. Acceptance of any improper delivery or payment does not prejudice the aggrieved party’s right to demand adequate assurance of future performance.

Section 2610 states that, when either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may act in one of three specified manners.

Section 2611 provides that, until the repudiating party’s next performance is due, he can retract his repudiation unless the aggrieved party has since the repudiation canceled or materially changed his position or otherwise indicated that he considers the repudiation final. Retraction may be by any method which clearly indicates to the aggrieved party that the repudiating party intends to perform, but must include any assurance justifiably demanded under the provisions of this division. Retraction reinstates the repudiating party’s rights under the contract with due excuse and allowance to the aggrieved party for any delay occasioned by the repudiation.

Section 2612 defines the term “installment contract.” The buyer may reject any installment which is nonconforming if the nonconformity substantially impairs the value of that installment and cannot be cured or if the nonconformity is a defect in the required documents.

Section 2613 states that, where the contract requires for its performance goods identified when the contract is made, and the goods suffer casualty without fault of either party before the risk of loss passes to the buyer, or in a proper case under a “no arrival, no sale” term then if the loss is total the contract is avoided.

Section 2614 provides that, where without fault of either party the agreed berthing, loading, or unloading facilities fail or an agreed type of carrier becomes unavailable or the agreed manner of delivery otherwise becomes commercially impracticable but a commercially reasonable substitute is available, the substitute performance must be tendered and accepted.

Section 2615 specifies that a seller may have assumed a greater obligation and subject to the preceding section on substituted performance. The seller must notify the buyer seasonably that there will be delay or non-delivery and, when allocation is required, of the estimated quota thus made available for the buyer.

Section 2616 says that, where the buyer receives notification of a material or indefinite delay or an allocation justified under the preceding section, he may by written notification to the seller as to any delivery concerned, and where the prospective deficiency substantially impairs the value of the whole contract under the provisions of this division relating to breach of installment contracts, to terminate and thereby discharge any unexecuted portion of the contract or modify the contract by agreeing to take his available quota in substitution.